Thursday, 11 September 2008

How Progressive are the Tories?

How 'progressive' are the Tories?

This seems to be one of the big questions of the conference season. Since I take the ends of the left to include the abolition of poverty, I am going to assume that this is a reasonable criterion by which to judge Conservative claims to be 'progressive'.

On poverty, the emerging Conservative line seems to be: 'We intend to do something serious about poverty, but we intend to tackle it by means other than just redistribution.'

The first thing to say about this is that this marks absolutely no conceptual difference with Labour. One of the central themes of New Labour's social policy has been to address poverty as a multidimensional problem requiring benefit reform, measures to boost incentives and capabilities for work, efforts to raise educational performance amongst children in low-income families, a range of 'early years' interventions, and much more. Of course, it may be that the Conservatives have some good new ideas about how to address some of these issues. But the implication that Labour has been busy just shoving cash into the pockets of the poor (some of us might wish it had done more of this) and ignoring issues such as skills and employability is risible. What the Conservatives are really saying, one suspects, is simply that they will not redistribute as much as Labour.

But if that is the case, then their anti-poverty stance lacks any credibility. Why? Because we are entering a period in which at least two major developnments will make the need for redistribution especially urgent to combat poverty.

One development is the need to do something serious about climate change. Tackling climate change will involve making us, as consumers, pay prices for goods and services that more accurately reflect their real environmental cost. It will mean pricing some things that, until now, have been free in monetary terms (on the model of the congestion charge). But this environmental pricing will eat into poor incomes more heavily than into high incomes: a £10 congestion charge takes a bigger proportion of your income if your income is £15,000 a year than if it is £150,000 a year.

A second development is the emerging wage squeeze. Countries like India and especially China have huge reserves of labour. As these countries become more open to external investment, the result is, in effect, a global shift in the availability of labour relative to capital. The Harvard economist Richard Freeman has calculated that the global ratio of capital to labour is set to fall by a third or more. As any economics textbook will tell you, as labour becomes more abundant relative to capital, the price of labour will fall, the return to capital will rise. In countries such as the UK, we can expect downward pressure not only on the wages of unskilled workers, but even of highly skilled workers who have to compete with an increasingly well educated and skilled workforce in countries like India and China.

Eventually, investment in these countries will bring the capital-labour ratio back up, and wages will rise. But for a couple of decades or so, we will be in a period of transition in which there will be downward pressure on wages in countries like the UK. It would be wrong to try to avoid this by a retreat into protectionism. And it is naive to think that we can educate ourselves out of the problem; as said, the workforces of countries like India and China are themselves increasingly well educated. The only solution is redistribution. To help those on the lowest earnings we will have to share out our earnings (and our profits) more equitably.

As it happens, I will be chairing a fringe meeting, organised by ippr, on Conservative policy towards poverty at their party conference in a couple of weeks. This will give me a chance to ask the Conservative spokesperson on these issues how a Conservative government might respond to the immense challenges to anti-poverty policy posed by tackling climate change and the emerging wages squeeze. I'll let you know if I get any credible answers....